ROBERT DINO, G.R. No.

170912

Petitioner,

Present: This is a petition for review[1] of the 16 August 2005 Decision [2] and 30 November
2005 Resolution[3] of the Court of Appeals in CA-G.R. CV No. 57994. The Court of
Appeals affirmed the decision of the Regional Trial Court, 7th Judicial Region,
CARPIO, J., Chairperson, Branch 56, Mandaue City (trial court), with the deletion of the award of interest,
moral damages, attorneys fees and litigation expenses. The trial court ruled that
- versus - BRION, respondents Maria Luisa Judal-Loot and Vicente Loot are holders in due course of
Metrobank Check No. C-MA 142119406 CA and ordered petitioner Robert Dino as
DEL CASTILLO, drawer, together with co-defendant Fe Lobitana as indorser, to solidarily pay
respondents the face value of the check, among others.
ABAD, and

MARIA LUISA JUDAL-LOOT, PEREZ, JJ.

joined by her husband

The Facts
VICENTE LOOT, Promulgated:

Respondents. April 19, 2010

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Sometime in December 1992, a syndicate, one of whose members posed as an
owner of several parcels of land situated in Canjulao, Lapu-lapu City, approached
petitioner and induced him to lend the group P3,000,000.00 to be secured by a real
estate mortgage on the properties. A member of the group, particularly a woman
DECISION pretending to be a certain Vivencia Ompok Consing, even offered to execute a Deed
of Absolute Sale covering the properties, instead of the usual mortgage
contract.[4] Enticed and convinced by the syndicates offer, petitioner issued three
Metrobank checks totaling P3,000,000.00, one of which is Check No. C-MA-
142119406-CA postdated 13 February 1993 in the amount of P1,000,000.00
CARPIO, J.: payable to Vivencia Ompok Consing and/or Fe Lobitana. [5]

Upon scrutinizing the documents involving the properties, petitioner discovered that
the documents covered rights over government properties. Realizing he had been
The Case
deceived,petitioner advised Metrobank to stop payment of his checks. However,
only the payment of Check No. C-MA- 142119406-CA was ordered stopped. The
other two checks were already encashed by the payees.
Meanwhile, Lobitana negotiated and indorsed Check No. C-MA- 142119406-CA to
respondents in exchange for cash in the sum of P948,000.00, which respondents
borrowed from Metrobank and charged against their credit line. Before respondents
accepted the check, they first inquired from the drawee bank, Metrobank, Cebu-
Mabolo Branch which is also their depositary bank, if the subject check was
sufficiently funded, to which Metrobank answered in the positive. However, when
respondents deposited the check with Metrobank, Cebu-Mabolo Branch, the same
was dishonored by the drawee bank for reason PAYMENT STOPPED.
Respondents filed a collection suit [6] against petitioner and Lobitana before the trial
court. In their Complaint, respondents alleged, among other things, that they are
holders in due course and for value of Metrobank Check No. C-MA-142119406-CA
and that they had no prior information concerning the transaction between
defendants.
In his Answer, petitioner denied respondents allegations that on the face of the
subject check, no condition or limitation was imposed and that respondents are
holders in due course and for value of the check. For her part, Lobitana denied the
allegations in the complaint and basically claimed that the transaction leading to the
issuance of the subject check is a sale of a parcel of land by Vivencia Ompok
Consing to petitioner and that she was made a payee of the check only to facilitate
its discounting.
The trial court ruled in favor of respondents and declared them due course holders
of the subject check, since there was no privity between respondents and
defendants. The dispositive portion of the 14 March 1996 Decision of the trial court
reads:
In summation, this Court rules for the Plaintiff and against the
Defendants and hereby orders:
1.) defendants to pay to Plaintiff, and severally, the
amount of P1,000,000.00 representing the face value of
subject Metrobank check;
2.) to pay to Plaintiff herein, jointly and severally, the
sum of P101,748.00 for accrued and paid interest;
3.) to pay to Plaintiff, jointly and severally, moral
damages in the amount of P100,000.00;
4.) to pay to Plaintiff, jointly and severally, the sum
of P200,000.00 for attorneys fees; and
5.) to pay to Plaintiff, jointly and severally, litigation
expenses in the sum of P10,000.00 and costs of the
suit.
SO ORDERED.[7]
Only petitioner filed an appeal. Lobitana did not appeal the trial courts judgment.
The Ruling of the Court of Appeals
The Court of Appeals affirmed the trial courts finding that respondents are holders in
due course of Metrobank Check No. C-MA- 142119406-CA. The Court of Appeals
pointed out that petitioners own admission that respondents were never parties to
the transaction among petitioner, Lobitana, Concordio Toring, Cecilia Villacarlos, In its 30 November 2005 Resolution, the Court of Appeals denied petitioners motion
and Consing, proved respondents lack of knowledge of any infirmity in the for reconsideration.
instrument or defect in the title of the person negotiating it. Moreover, respondents
verified from Metrobank whether the check was sufficiently funded before they
accepted it. Therefore, respondents must be excluded from the ambit of petitioners In denying the petitioners motion for reconsideration, the Court of Appeals noted
stop payment order.
that petitioner raised the defense that the check is a crossed check for the first time
on appeal (particularly in the motion for reconsideration). The Court of Appeals
rejected such defense considering that to entertain the same would be offensive to
The Court of Appeals modified the trial courts decision by deleting the award of the basic rules of fair play, justice, and due process.
interest, moral damages, attorneys fees and litigation expenses. The Court of
Appeals opined that petitioner was only exercising (although incorrectly), what he
perceived to be his right to stop the payment of the check which he Hence, this petition.
rediscounted. The Court of Appeals ruled that petitioner acted in good faith in
ordering the stoppage of payment of the subject check and thus, he must not be
made liable for those amounts.
The Issues

In its 16 August 2005 Decision, the Court of Appeals affirmed the trial courts
decision with modifications, thus: Petitioner raises the following issues:

WHEREFORE, premises considered, finding no reversible error in

the decision of the lower court, WE hereby DISMISS the appeal and
I. THE COURT OF APPEALS ERRED IN HOLDING
AFFIRM the decision of the court a quo with modifications that the
THAT THE RESPONDENTS WERE HOLDERS IN DUE
award of interest, moral damages, attorneys fees and litigation
COURSE. THE FACT THAT METROBANK CHECK NO. 142119406
expenses be deleted.
IS A CROSSED CHECK CONSTITUTES SUFFICIENT WARNING
TO THE RESPONDENTS TO EXERCISE EXTRAORDINARY
DILIGENCE TO DETERMINE THE TITLE OF THE INDORSER.
No pronouncement as to costs.

SO ORDERED.[8]

II. THE COURT OF APPEALS ERRED IN DENYING
PETITIONERS MOTION FOR RECONSIDERATION UPON THE
GROUND THAT THE ARGUMENTS RELIED UPON HAVE ONLY
BEEN RAISED FOR THE FIRST TIME. EQUITY DEMANDS THAT
THE COURT OF APPEALS SHOULD HAVE MADE AN EXCEPTION
TO PREVENT THE COMMISSION OF MANIFEST WRONG AND
INJUSTICE UPON THE PETITIONER.[9]
The Ruling of this Court
The petition is meritorious.
Respondents point out that petitioner raised the defense that Metrobank Check No.
C-MA-142119406-CA is a crossed check for the first time in his motion for
reconsideration before the Court of Appeals. Respondents insist that issues not
raised during the trial cannot be raised for the first time on appeal as it would be
offensive to the elementary rules of fair play, justice and due process. Respondents
further assert that a change of theory on appeal is improper.
In his Answer, petitioner specifically denied, among others, (1) Paragraph 4 of the
Complaint, concerning the allegation that on the face of the subject check, no
condition or limitation was imposed, and (2) Paragraph 8 of the Complaint, regarding
the allegation that respondents were holders in due course and for value of the
subject check. In his Special Affirmative Defenses, petitioner claimed that for want
or lack of the prestation, he could validly stop the payment of his check, and that by
rediscounting petitioners check, respondents took the risk of what might happen on
the check. Essentially, petitioner maintained that respondents are not holders in due
course of the subject check, and as such, respondents could not recover any liability
on the check from petitioner.
Indeed, petitioner did not expressly state in his Answer or raise during the trial that
Metrobank Check No. C-MA-142119406-CA is a crossed check. It must be stressed,
however, that petitioner consistently argues that respondents are not holders in due
course of the subject check, which is one of the possible effects of crossing a
check. The act of crossing a check serves as a warning to the holder that the check
has been issued for a definite purpose so that the holder thereof must inquire if he
has received the check pursuant to that purpose; otherwise, he is not a holder in
due course.[10] Contrary to respondents view, petitioner never changed his theory,
that respondents are not holders in due course of the subject check, as would
violate fundamental rules of justice, fair play, and due process. Besides, the subject
check was presented and admitted as evidence during the trial and respondents did
not and in fact cannot deny that it is a crossed check.
In any event, the Court is clothed with ample authority to entertain issues or matters
not raised in the lower courts in the interest of substantial justice. [11] In Casa Filipina
Realty v. Office of the President,[12] the Court held:
[T]he trend in modern-day procedure is to accord the courts broad
discretionary power such that the appellate court may consider
matters bearing on the issues submitted for resolution which the
parties failed to raise or which the lower court ignored. Since rules of
procedure are mere tools designed to facilitate the attainment of
justice, their strict and rigid application which would result in
technicalities that tend to frustrate rather than promote substantial
justice, must always be avoided. Technicality should not be allowed
 to stand in the way of equitably and completely resolving the rights
and obligations of the parties.[13]
Having disposed of the procedural issue, the Court shall now proceed to the merits
of the case. The main issue is whether respondents are holders in due course of
Metrobank Check No. C-MA 142119406 CA as to entitle them to collect the face
value of the check from its drawer or petitioner herein.
Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:
A holder in due course is a holder who has taken the instrument
under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was
overdue, and without notice that it has been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had
no notice of any infirmity in the instrument or defect in
the title of the person negotiating it.
In the case of a crossed check, as in this case, the following principles must
additionally be considered: A crossed check (a) may not be encashed but only
deposited in the bank; (b) may be negotiated only once to one who has an account
with a bank; and (c) warns the holder that it has been issued for a definite purpose
so that the holder thereof must inquire if he has received the check pursuant to that
purpose; otherwise, he is not a holder in due course. [14]
Based on the foregoing, respondents had the duty to ascertain the indorsers, in this
case Lobitanas, title to the check or the nature of her possession. This respondents
failed to do. Respondents verification from Metrobank on the funding of the check
does not amount to determination of Lobitanas title to the check. Failing in this
respect, respondents are guilty of gross negligence amounting to legal absence of
good faith,[15] contrary to Section 52(c) of the Negotiable Instruments Law. Hence,
respondents are not deemed holders in due course of the subject check. [16]
State Investment House v. Intermediate Appellate Court [17] squarely applies to this
case. There, New Sikatuna Wood Industries, Inc. sold at a discount to State
Investment House three post-dated crossed checks, issued by Anita Pea Chua
naming as payee New Sikatuna Wood Industries, Inc. The Court found State
Investment House not a holder in due course of the checks. The Court also
expounded on the effect of crossing a check, thus:
Under usual practice, crossing a check is done by placing two
parallel lines diagonally on the left top portion of the check. The
crossing may be special wherein between the two parallel lines is
written the name of a bank or a business institution, in which case the
drawee should pay only with the intervention of that bank or
company, or crossing may be general wherein between two parallel
diagonal lines are written the words and Co. or none at all as in the
case at bar, in which case the drawee should not encash the same
but merely accept the same for deposit.
The effect therefore of crossing a check relates to the mode of its
presentment for payment. Under Section 72 of the Negotiable
 Instruments Law, presentment for payment to be sufficient must be
made (a) by the holder, or by some person authorized to receive
payment on his behalf x x x As to who the holder or authorized
person will be depends on the instructions stated on the face of the
check.
The three subject checks in the case at bar had been crossed
generally and issued payable to New Sikatuna Wood Industries, Inc.
which could only mean that the drawer had intended the same for
deposit only by the rightful person, i.e., the payee named therein.
Apparently, it was not the payee who presented the same for
payment and therefore, there was no proper presentment, and the
liability did not attach to the drawer.
Thus, in the absence of due presentment, the drawer did not become
liable. Consequently, no right of recourse is available to petitioner
against the drawer of the subject checks, private respondent wife,
considering that petitioner is not the proper party authorized to make
presentment of the checks in question.
However, the fact that respondents are not holders in due course does not
automatically mean that they cannot recover on the check. [18] The Negotiable
Instruments Law does not provide that a holder who is not a holder in due course
may not in any case recover on the instrument. The only disadvantage of a holder
who is not in due course is that the negotiable instrument is subject to defenses as if
it were non-negotiable.[19] Among such defenses is the absence or failure of
consideration,[20] which petitioner sufficiently established in this case. Petitioner
issued the subject check supposedly for a loan in favor of Consings group, who
turned out to be a syndicate defrauding gullible individuals.Since there is in fact no
valid loan to speak of, there is no consideration for the issuance of the check.
Consequently, petitioner cannot be obliged to pay the face value of the check.
Respondents can collect from the immediate indorser, [21] in this case
Lobitana. Significantly, Lobitana did not appeal the trial courts decision, finding her
solidarily liable to pay, among others, the face value of the subject check. Therefore,
the trial courts judgment has long become final and executory as to Lobitana.
WHEREFORE, we GRANT the petition. We SET ASIDE the 16 August 2005
Decision and 30 November 2005 Resolution of the Court of Appeals in CA-G.R. CV
No. 57994.

SO ORDERED.
In this case, there is no question that the payees of the check, Lobitana or Consing,
were not the ones who presented the check for payment. Lobitana negotiated and
indorsed the check to respondents in exchange for P948,000.00. It was respondents
who presented the subject check for payment; however, the check was dishonored
for reason PAYMENT STOPPED. In other words, it was not the payee who
presented the check for payment; and thus, there was no proper presentment. As a
result, liability did not attach to the drawer. Accordingly, no right of recourse is
available to respondents against the drawer of the check, petitioner herein, since
respondents are not the proper party authorized to make presentment of the subject
check.